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Holders of Puerto Rico's Valid Constitutional Debt Align with Fellow Creditors and the Oversight Board on Milestone Restructuring Agreement
[June 16, 2019]

Holders of Puerto Rico's Valid Constitutional Debt Align with Fellow Creditors and the Oversight Board on Milestone Restructuring Agreement

The Lawful Constitutional Debt Coalition (the "Coalition" or "LCDC"), which includes certain major holders of Puerto Rico's General Obligation ("GO") and Public Buildings Authority ("PBA") bonds issued prior to March of 2012, today disclosed that three months of negotiations with the Financial Oversight and Management Board (the "Oversight Board") have resulted in a Plan Support Agreement ("PSA") that establishes terms for the consensual restructuring of more than $18 billion in GO and PBA debt. The Coalition's members, who have joined together to pursue a consensual restructuring that offers all creditors equitable outcomes, each signed the PSA made public today. Other PSA signatories include members of the ad hoc group of Qualified School Construction and Qualified Zone Academy bondholders.

Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan, LLP, in his capacity representing the LCDC, commented:

"It is a very positive development for Puerto Rico that a cross-section of large bondholders has worked with the Oversight Board to develop a consensual restructuring agreement that will accelerate the Commonwealth's exit from bankruptcy, respect the lawful priority of valid public debt, and help ultimately restore capital markets access. The PSA forged by major stakeholders includes approximately $8 billion in GO and PBA debt reduction while establishing a framework for reducing the Commonwealth's total funded debt and general unsecured claims by $23 billion. The terms also create an efficient path for resolving disputes over the validity and priority of GO debt - one that will enable the Commonwealth to save hundreds of millions of dollars per year in restructuring-related expenses upon exiting bankruptcy.

This agreement demonstrates that creditors with long-term investments and interests in Puerto Rico are willing to make meaningful ompromises intended to reignite capital formation and economic development on the island. Under the terms, holders of valid GO bonds will accept baseline haircuts of approximately 36%. When paired with recently announced consensual agreements with unions and retirees, we believe the restructuring of more than $18 billion in constitutional debt will help Puerto Rico speed up its exit from bankruptcy and achieve the type of revitalization that other municipal issuers have realized following their bankruptcies.

Looking ahead, the LCDC is optimistic that like-minded creditors will sign on to the PSA disclosed today. We believe this agreement's terms provide all holders of GO and GO-guaranteed debt the opportunity to realize equitable recoveries based on their relative priority and rights. We look forward to working alongside constructive stakeholders to achieve confirmation and then consummation of a Plan of Adjustment for the Commonwealth in the months to come."

Please click here to access the documentation that has been made public as part of today's disclosure. A summary of the key terms provided under the PSA include:

  • Participating bondholders will receive a combination of new bonds and cash;
  • In aggregate, GO bondholders will receive a baseline recovery of approximately 64%1;
  • Ratable distributions for disputed bondholder claims will be placed in escrow;
  • Authority to litigate or settle existing "late vintage litigation" will be transferred to a litigation trust post-confirmation, and;
  • Litigation value of up to $1.4 billion will exist for the Commonwealth.

About the LCDC

The LCDC consists of institutional holders of Puerto Rico's GO and PBA bonds issued prior to March of 2012. The Coalition's mission is to reach an equitable, economically-viable restructuring that respects the lawful priority of early vintage constitutional debt and properly characterizes the PBA structure. Quinn Emanuel Urquhart & Sullivan, LLP and Reichard & Escalera, LLC are serving as the LCDC's legal counsel, with Miller Buckfire & Co, a Stifel company, acting as the Coalition's financial advisor.

Cautionary Statement

This communication and accompanying material are not intended to represent a recommendation or investment advice of any kind. Such content is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational purposes only and, as such, should not be construed as legal or investment advice and/or a legal opinion.

1 The term "baseline recovery" refers to the recovery that GO bondholders would receive from the allocated cash and bond currency if early vintage, 2012 and 2014 bondholders had full faith and credit claims of equal priority.

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